This week, we take a look at three stocks slated to report earnings, two of which got battered following their previous earnings reports, and one that’s been steadily chugging higher despite a lack of actual earnings.
As we enter the tail end of earnings season, nearly all of the companies in S&P 500 have reported already. It’s been a pretty exciting season, though, with three-thirds of companies beating Street estimates on the bottom line and 64% beating on the top line.
But if we’re talking valuations, things get a little bit iffy. Considering that the five-year price-earnings ratio is approximately 15.2 and the 10-year is 14, the market’s current P/E ratio of 17.3 seems frothy. Judging by what’s on tap next week, investors are either going to be shaving off some of that froth or building on it.
Let’s take a peek inside the earnings confessional for the shortened week.
Earnings Reports to Watch: Palo Alto Networks (PANW)
Expectations: 55 cents per share; $412M
Forward P/E Ratio: 37
Palo Alto Networks Inc (NYSE:PANW) is a cybersecurity stock that took a beating in late February following its quarterly-earnings report. Shares fell more than 20% in one day — the worst one-day decline ever for PANW stock — after the company missed on sales and dramatically lowered its earnings guidance. Analysts were also quick to downgrade PANW stock after the report, likely adding to the damage.
Wall Street’s estimates for the current quarter’s report, which is slated to be released next week, are now in line with that lowered guidance. The current consensus is for earnings of 55 cents per share — far from the 70-cent guidance that existed before last quarter’s debacle. That lowered estimate still represents 31% year-over-year growth, though, and is set to come on the back of 19% sales growth.
But even after the damage, Palo Alto Networks stock is still sporting a forward P/E of 37 — a premium to the long-term growth of 30% expected. It’s especially frothy considering more lowered guidance could be in the cards. The slightest earnings miss could send investors heading for the exits … again.
Earnings Reports to Watch: Lululemon (LULU)
Expectations: 28 cents per share; $513.8M
Fwd P/E Ratio: 18.3
Another stock that’s been struggling of late is fashion sportswear retailer Lululemon Athletica inc. (NASDAQ:LULU). Much like Palo Alto Networks, LULU stock took a dramatic plunge after last quarter’s earnings were released.
Shares sank 20% in one day thanks to an earnings miss (99 cents per share versus expectations of $1.01 per share) and mere 6% same-store sales growth. Guidance was also shrug worthy, as the CEO cited a slow start to the year.
For the current quarter, Lululemon is expected to post earnings of 28 cents per share. Just three months ago, Wall Street was expected 11 cents more than that, which would have represented earnings growth. The new consensus, though, translated to a nearly 7% year-over-year drop.
This may just be LULU trying to avoid another miss by being conservative. Plus, long-term earnings growth is still expected to be 13%. The bad news, though, is that still leaves Lululemon stock at a premium. Even after the crazy March drop, shares sport a forward P/E of 18.
Earnings Reports to Watch: Box (BOX)
Expectations: -14 cents per share; $114.8M
Fwd P/E Ratio: N/A
Year-to-date, Box Inc (NYSE:BOX) stock tells a very different story. For those not familiar, Box is a Silicon Valley darling that offers a software-as-a-service cloud platform to enterprises.
Shares of Box have gained around 35% since the start of year, besting the gain of the broader market and contributing the past year’s 55% climb. And yet, the company is still lacking profits. When Box reports earnings on May 31, analysts expect a loss of 14 cents per share — four pennies less than the loss in the same period a year ago.
As long as the loss isn’t worse than expected (and Box seems to be good at setting a reasonable bar, as it’s handily posted narrower-than-expected losses in each of the past four quarters), I suspect investors will care far more about sales, which speak to the company’s overall growth prospects. For the most recent three months, sales are on tap to expand by 27%.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.